Detroit's future looks brighter as retirees back pension cuts

Published 6:31 pm, Tuesday, July 22, 2014

Detroit retirees Mike Shane (left) and William Davis protest July 3 near the federal courthouse in Detroit, during a 60-day period of voting by city workers and retirees on cutting their pensions.

Detroit retirees Mike Shane (left) and William Davis protest July 3 near the federal courthouse in Detroit, during a 60-day period of voting by city workers and retirees on cutting their pensions.

Photo: Paul Sancya, Associated Press

Detroit's future looks brighter as retirees back pension cuts

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Detroit --

A year after filing for bankruptcy, Detroit is building momentum to get out, especially after workers and retirees voted in favor of major pension changes just a few weeks before a judge holds a crucial trial that could end the largest public filing in U.S. history.

Pension cuts were approved in a landslide, according to results filed shortly before midnight Monday. The tally from 60 days of voting gives the city a boost as Judge Steven Rhodes determines whether Detroit's overall strategy to eliminate or reduce $18 billion in long-term debt is fair and feasible to all creditors. Trial starts Aug. 14.

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"I want to thank city retirees and active employees who voted for casting aside the rhetoric and making an informed, positive decision about their future and the future of the city," said Kevyn Orr, the state-appointed emergency manager who has been handling Detroit's finances since March 2013.

General retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. They accepted the changes with 73 percent of ballots in favor. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. Eighty-two percent in that class voted yes.

Voting ended July 11, and the counting was done by a private company.

Support for the pension changes triggers an extraordinary $816 million bailout from the state of Michigan, foundations and the Detroit Institute of Arts. The money would prevent the sale of city-owned art and avoid deeper pension cuts. The judge, however, still must agree.

In a statement Tuesday, Michigan Gov. Rick Snyder said the vote is recognition that the state has pulled together in support of the city. He noted that many people faced "difficult decisions" and said their sacrifices are appreciated.

"We have farther to go down this road," Snyder said. "But the vote tallies show how far we've come in the past year, and that Detroit's future is increasingly brighter."

There are tens of thousands of creditors in Detroit's bankruptcy, from bond holders to businesses, but much of the focus has been on the roughly 32,000 retirees and current and former workers.

The average annual pension for police and fire retirees is $32,000, while most other retired city workers get $19,000 to $20,000. Orr has said pension changes are necessary because two funds are underfunded by billions.

The Michigan Constitution says public pensions can't be cut, but Rhodes said in December that federal bankruptcy law trumps that shield. It was a groundbreaking opinion that could influence local governments across the country.